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MARCO WERMAN: Homeowners have learned, much to their distress, what happens when a bubble bursts – in their case, the housing bubble. Now, artists are learning a similar lesson. Those whose works were appreciating in value by the month are no longer finding such a friendly market. This cycle has played out to extremes in China. The value of Chinese contemporary art sales rose almost a thousand percent from 2005 to 2006. Now, as The World's Mary Kay Magistad reports from Beijing, prices are plummeting and galleries are shutting down.

MARY KAY MAGISTAD: This once hip art district in northern Beijing is called 798 – that was the name of the old factory that used to function here. The district has a sort of riches-to-rags story. Eight years ago, all you'd find here was a bunch of half-deserted factories. Then, a few artists started to move in because there was a lot of cheap space. Then came art aficionados and more artists, and tourists, and then gallery owners who knew a trendy thing when they saw one. They all rode the wave of China's burst onto the global contemporary art scene. But that was then, says Huang Qu Hui. She helps run the K Space Gallery, one of the first of the 798 art scene.

HUANG QU HUI: Before, there were a lot of foreign tourists, or foreigners who work in Beijing. They came here a lot, and they always bought things. But now, there are far fewer people buying artwork. And if they buy, they buy cheaper things.

MAGISTAD: Huang says 40 galleries in this district have closed in recent months because the rent remained high while sales plummeted. Down the lane, Yuen Wi Jie runs a sculpture gallery that's seen better days. “Sales were really good in the first half of 2008. But after the Olympics, they really fell off. We used to sell several pieces a week, and now we might sell one a month.” In Yuen's gallery is a foot-high fiberglass caricature of a Red Guard shouting into a megaphone. It goes for $750 dollars. There's also a series of 12 similar-sized statues of animal heads on human bodies wearing ancient Chinese robes. Yuen made the statues himself. They go for about $450 dollars each. These are not particularly original. You can find similar statues in other galleries. But Yuen won't lower his prices. He says he's always been able to get good money for his sculptures. He doesn't quite believe that the bottom has fallen out. That's the problem when a bubble bursts. Art aficionado Giorgio Ronsani visits this art district often. He says some galleries don't yet seem to realize that the global economic crisis includes them.

GIORGIO RONSANI: Every time I see a piece that I would buy, I ask, “How much is it?” And they're shooting $15,000, $25,000, $30,000. And they don't realize that in Europe and the United States, for this kind of money you can find a very nice piece of art. Of course, not by the masters, but an interesting piece of art.

MAGISTAD: Why do you think there's disconnect here?

RONSANI: Because so far, in the last three or four years in China, there's been easy money. Everybody got rich very easily, and they think it only goes up. It only goes up.

MAGISTAD: But some on the art scene are painfully learning the rules of gravity. Zhan Yue Jin is Vice General manager of the Hanhai Art Auction House. She says prices were down 30 percent in the December auction. Fewer people bid and fewer items were sold. Yet Zhan thinks there may be a silver lining. “I think the economic crisis will provide an opportunity to clear out the not-so-good artists. Now, fewer people are buying art and they're more careful about what they buy.” They may be less likely to buy works by the many Chinese artists who copy well-known Western artists or follow proven trends. That happens all too often, says art lover Giorgio Ronsani.

RONSANI: It's very, very difficult for me to find something really, “Oh, my God. I like it or don't like it, but at least it's something really different.”

MAGISTAD: But be patient, says Zhan Yue Jin, of the Hanhai Auction House. She says contemporary art as the West knows it is still new in China and artists are gradually exploring and being more original. “I think they are just trying to have their own styles, but there will certainly be obstacles down the road. The problem is whether an original style will be accepted by the general public. If not, the artists will just have to change their style.” “Not necessarily,” I tell her. “Vincent Van Gogh wasn't accepted by his contemporaries.” Zhan considers this and says “maybe so, but so far, China hasn't found its Van Gogh.” For The World, I'm Mary Kay Magistad, in Beijing.

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